General Electric, whose stock has plummeted as its struggling power business distorted the manufacturer’s leverage, said Tuesday it may raise almost $4 billion by paring its stake in oil business Baker Hughes.
Boston-based GE holds a majority stake in Baker Hughes, which agreed to merge with the conglomerate’s own oil and gas business in late 2016. GE says it will sell as much as 101 million shares of Baker Hughes, valued at $24.28 on Tuesday morning, mostly on the open market, and Baker Hughes will repurchase 65 million shares as new Chief Executive Officer Larry Culp works to trim leverage and restore investor confidence.
“We need to bring the leverage down,” Culp said in a CNBC interview on Monday, and planned sales of businesses will help achieve that. “It’s important to strengthen the balance sheet. It’s important for our investors, for the ratings agencies, for the investors, for everybody with an interest in the company.”
Culp, the former CEO of Danaher, was appointed to GE’s top job at the start of October, replacing John Flannery, who presided over a 54 percent drop in the company’s stock during a little more than a year at the helm after Immelt’s departure. He left at the end of the third quarter, a period in which GE posted a loss of $22.9 billion, largely due to a $22 billion write-down in the power unit. Both the Securities and Exchange Commission and the Department of Justice are reviewing the charge.
GE to cut its quarterly dividend in October for the second time in less than a year, all the way back to a penny per share, raised questions about its over-extended balance sheet and dragged its stock to $7.99 on Monday. The shares rallied 2 percent to $8.22 on Tuesday morning.
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GE maintains healthy liquidity, Culp has said, with $26.7 billion of cash at the end of September, savings of $3.9 billion a year from the dividend cut and $40 billion in credit lines.
Net debt from the company’s manufacturing businesses may be about 4.5 times their earnings by year’s end, said Stephen Tusa of New York-based JPMorgan Chase, and debt-ratings firm Standard & Poor’s lowered the firm’s score in October from A to BBB+, three levels above junk, making it more expensive to borrow money.
